Reed says city plans to sell Underground Atlanta

For years, Underground Atlanta has drawn big crowds for the New Year’s Eve Peach Drop.

Financially, though, the struggling downtown mall has become a rotten apple for the city of Atlanta. It pays about $8 million in debt service for a project that generates only about $100,000 in income for the city.

On March 19, Atlanta Mayor Kasim Reed said the city plans to buy out the remainder of an 88-year lease with the project’s operating partner, Dan O’Leary. The City Council has authorized a purchase price of $8.8 million.

The city plans to market Underground Atlanta to developers. O’Leary could not be reached for comment.

As recently as last year, O’Leary was still seeking a new direction for Underground Atlanta, including discussions about long-range plans for the development.

He’s even spoken to Georgia State University about its interest in the project. Nothing ever materialized.

The project, a collection of restaurants and shops, has continued to struggle as a tourist destination. The idea of finding a new developer comes as the city looks for ways to save money as it prepares to float a bond issue to finance a backlog of infrastructure projects.

Reed also likes the timing of testing investor interest because he sees more capital pouring into the city.

In the past few years, developers such as OliverMcMillan and Jamestown have pledged hundreds of millions to finance mixed-use projects such as Buckhead Atlanta, an 8-acre redevelopment of a former bar district, and Ponce City Market, the nearly $200 million transformation of the old Sears Roebuck & Co. building on Ponce de Leon Avenue.

The city sold the building in 2010 for more than $13 million to the developer Jamestown.

“We are trying to let the private markets do the work,” Reed told a group of Atlanta reporters March 19.

Last year, the city’s intown properties, including trophy buildings, mixed-use developments and apartment towers, attracted almost $1.4 billion in new investment, according to data from Real Capital Analytics, a New York firm that tracks real estate deals. That’s the most since $1.9 billion in 2007, the last good year before the market collapsed.

But, the heart of the city hasn’t won over investors the way that Buckhead and Midtown have.

In the Old Fourth Ward, a gentrifying part of the city along the Atlanta Beltline, Jamestown saw parallels with a similar project it has in Manhattan, Chelsea Market.

Buckhead is the city’s densest concentration of wealth.

Reed acknowledged the challenges facing a new plan for Underground Atlanta.

“It’s not going to happen overnight,” he said. “I don’t have a buyer in mind.”

Reed remained confident, though, citing what he said is mounting interest from developers in Turner Field, which the Atlanta Braves plan to leave after the 2016 season for a new ballpark in Cobb County.

Reed sees a “university energy” spreading into the heart of the city, spurred by the growth of schools such as Georgia State University. “Young people are moving in,” he said.

More investors are also looking at adaptive reuse projects. Recently, a real estate investor bought downtown’s well-known Flatiron Building, with plans to turn the property into an entrepreneurial hub.

Underground, which reopened nearly 25 years ago, on June 15, 1989, is still seen as a potential tourist draw for the city’s $11 billion tourism industry.

A revitalized Underground Atlanta would complement several new downtown attractions, the city said, including the National Center for Civil and Human Rights, the College Football Hall of Fame and the new Atlanta Falcons stadi